Conceptual Framework in Accounting Board

abstr passage Framework in method of invoiceing control panelIntroductionA abstract manakin has its basis in a hatful of inventions. These concepts atomic number 18 link to a system of methods, behaviors, functions, relationships and objects. The conceptual mannikin for fiscal reporting ..seeks to get word the nature, subject, advise and broad content of general-purpose monetary reporting and the soft distinctives that monetary development should possess. (Deegan, 2005, p.1184). It is of innate greatness to the rising growing of International financial Reporting Standards (IFRS).Conceptual example of an method of business relationship scorecardDefines the objective of financial statementsIdentifies the qualitative characteristics that make instruction in financial statements usefulDefines the basic elements of financial statementsSpecify how the elements are recognised and heedful in financial statements.The focus of this essay is on conceptual textile s propounded by explanation Standards Board (ASB), the monetary account statement Standards Board (FASB) and the International Accounting Standards Board (IASB) and in like manner the bet preconditionents proposed in the IASB and FASB Joint Discussion motif.ASB is a subsidiary company of the pecuniary Reporting Council (FRC) responsible for formulating pecuniary Reporting Standards.FASB is an Accounting Board that establishes rules governing accounting practices throughout the US. The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.IASB is the youngest Accounting Board of the three. It was founded on April 1, 2001 as the successor of International Accounting Standards mission (IASC) base in London, UK. IASB is responsible for setting International Accounting Standards. IASB has follow some of the regulations of its predecessor. It uses IASCs 1989 Framework for the Preparation and Presentation of Financial Statements. Thus, IASBs conceptual framework of accounting standards are outdated as the accounting standards confirming by IASB reflect the accounting thought in1989. In contrast, ASB pronouncements are to a greater extent(prenominal) than contemporary.IASB and FASB Joint Discussion musical themeIn October 2004, US FASB and the IASB accepted that their living frameworks move in different directions and were non complete and up to date. They headstrong to develop a single common conceptual framework that converges and improves the existing individual conceptual frameworks of the boards. They published a consultative document in 2006 setting out their preliminary views on an enhanced conceptual framework.Differences amidst Conceptual FrameworksThe conceptual frameworks put advancing by the three Boards stub be compared on the basis ofPurpose of the frameworkObjectives of financial statementsqualitative characteristicsElements of financial statementsRecognition and measuring stick criteriaThese are examined in detail to a lower placePurpose of the FrameworkThe three conceptual frameworks have similar purpose. The purpose of each framework is described belowASB The framework seeks to describe the fundamental approach propounded by ASB to strengthen the financial statements of profit-oriented entities. It provides a reference depute to help ASB in developing new accounting standards and reviewing existing ones.IASB same(p) ASB, IASBs framework also serves as a channel to the Board in developing accounting standards. It also acts as a guide to resolving accounting issues that are non addressed directly in an IAS or IFRS or Interpretation. With a revision to IAS 8 in 2003, the importance of conceptual framework has increased further.The IASB framework applies to all avocation entities twain in the private or public sector.FASB The purpose of the FASB frame work is also to assist standard setters in developing and revising accounting standards. The framework does not override accounting standards, and therefore in this respect it has a lower status than specific accounting standards. The FASB framework applies to both business sector and not-for-profit entities in the private sector.Despite the similar purpose of all frameworks, the speech pattern of the framework differs from board to board. For instance, the IASB framework has a broader purpose than the FASB framework. The IASB framework not yet assists IASB in developing or revising accounting standards besides also assists preparers, auditors, and users of financial statements. there is also a difference in the status of the frameworks. For instance, the IASB framework is considered at a higher level in its GAAP hierarchy than the FASB framework in the U.S. GAAP hierarchy. The management of entities preparing financial statements under IFRS is expressly required to follow the I ASB framework.IASB and FASB Joint Discussion physical composition The Discussion Paper states the purpose of conceptual framework to establish a common framework of the concepts that underlie financial reporting. The common framework is evaluate to suit the requirements of both FASB and IASB. However, this may lead to a problem. If the arguments contained in the intelligence penning are adopt as the common framework, this leave duration preparers and auditors as the framework will become theoretical and long and act only as a reference manual for standard setters.Objectives of Financial StatementsConceptual frameworks put forward by Accounting Boards put forward similar objectives of financial statement.ASB According to ASB the objective of financial statements is to provide information about the financial position, cognitive operation and the financial adaptability of an enterprise that is useful to a great range of users (19991)FASB The FASB framework specify objectives f or business entities and non-business entities. According to FASB in SFAC 1 financial reporting is not an end in itself nevertheless is intended to provide information that is useful in making business and stintingal decisions. (19789)IASB According to the IASBs Framework for the Preparation and Presentation of Financial Statements the objective of financial statements is to provide information about the financial position, performance and channelises in financial position of an enterprise that is useful to a wide range of users in making economic decisions. (200112)Unlike FASB framework, the IASB framework has a more limited scope. It discusses objectives in the context of business entities only.IASB and FASB Joint Discussion Paper The banter paper states that the objectives of financial reporting are to provide informationUseful to present and potential investors and creditors and former(a)s in making investment, credit, and similar imaginativeness allocation decisions.Useful in assessing cash flow prospectsAbout an entitys resources, claims to those resources, and changes in resources and claimsDespite the similarity of objectives propounded by the various frameworks, the differences may formulate due to the focus on users. The focus depends on the body producing the statements and establishing parameters.qualitative characteristicsThe conceptual frameworks identify primarily four principal qualitative characteristics in common Understandability Relevance, Re financial obligation and Comparability. However there are differences in terms of what constitute relevant and reliable information and which characteristic is more important than others.ASB The ASB narrow down the scope of their conceptual framework by establishing parameters which clearly defines the inclusions and exclusions. It defines the qualitative characteristics of the information which merits inclusion, for example, relevancy, reliability, and comparing. UK ASB treats information to be reliable if it is spare from material errors. Though freedom from material error is holdd as a sub-quality of reliability, the framework excludes verifiability as an essential element for reliability of information.The conceptual framework of ASB favours relevance over reliability if there is a contrast in the midst of relevance and reliability concept.IASB According to IASB, information is relevant when it influences the economic decisions of users and is reliable if it is free from material error and bias and can be depended upon by users to represent events and transactions faith in full.IASB framework treats all four qualitative characteristics as primary qualitative characteristics. It treats materiality of information and its timeliness as a component of relevance. IASB does not give importance to one characteristic over the other. There is sometimes a tradeoff between relevance and reliability and judgement is required to provide the appropriate remnant. IASB expects ma nagement to perform prudence or conservatism to provide this balance.FASB Unlike IASB, FASB framework set out the qualitative characteristics in a hierarchy, treating understandability as a user-specific quality separate from the others, relevance and reliability as the primary qualities, and comparability as a secondary quality.IASB and FASB Joint Discussion Paper The discussion paper proposes replacing the qualitative characteristic of reliability in the trustworthy frameworks with faithful representation. The paper also highlights areas where the qualitative characteristics of both IASB and FASB conceptual framework can be improved. For example, both frameworks emphasise neutrality, prudence or conservatism and expect that the exercise of prudence or conservatism does not allow the deliberate understatement of net additions and profits. However, the hard fact is that a concept of prudence or conservatism is inconsistent with the concept of neutrality.Elements of Financial Stat ementsThere are differences, though not major, between frameworks in relation to elements of financial statementsASB ASB classifies transactions and other events into 5 elements additions, liabilities, ownership interests, gains and losses. Assets, liabilities and ownership interest are included in the Balance Sheet and gains and losses in the loot want Account.IASB Like ASB, IASB framework also has 5 elements of financial statements Assets, Liabilities, Equity, Liabilities, Income and Expenses. The jump three elements form a part of the Balance Sheet and the lead two a part of the Income Statement or Profit Loss Account. The assets, defined as a resource controlled by the enterprise as a direct of past events and from which future economic benefits are pass judgment to flow to the enterprise, has a central role. All other element definitions are based on the definition of assets.FASB FASB framework has seven elements in all. Elements, such as assets, liabilities, and equit y are for describing the financial position. Unlike two elements for IASB, the FASB framework includes five elements relating to financial performance revenue, gains, expenses, losses, and comprehensive income.Though assets definition is still primary, there are differences in terms of how assets are defined by IASB and FASB. The FASB framework includes probable as part of the definition of assets and liabilities, whereas the IASB framework includes the term in its comprehension criteria, and the meaning of the word is not the same. In plus to this, as per IASB, the asset is the resource from which future economic benefits are anticipate to flow, whereas as per FASB, the asset is the future economic benefits themselves.IASB and FASB Joint Discussion Paper The discussion paper finds gaps in the existing frameworks in respect of the succeeding(a) aspects of elements of financial statements and requires the converged conceptual framework to focus on theseThe distinction between li abilities and equityDefinition of a liabilityThe effect of conditions, contingencies, or uncertaintiesAccounting for contractual rights and obligationsRecognition criteria for financial reportingThe objective of financial statements is achieved by depicting in the primary financial statements the effects that transactions and other events have on the elements. This process is known as recognition. Frameworks differ with hold to recognition of effects of transactions.ASB According to ASB framework, if a transaction leads to creation of a new asset or liability or to adds to an existing asset or liability, the effect will be recognised in the balance sheet. This recognition will happen only if there is sufficient prove that the asset or liability exists and can be measured faithfully enough in monetary terms. Except when there has been no change in the total net assets or the whole of the change is the result of capital contributions or distributions, a gain or loss will be recogn ised at the same time. ASB does not take into account probable effects.IASB Unlike ASB, IASB framework includes probable test for recognizing effects of transactions. For example, the IASB framework requires that an asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the enterprise and the asset has a address or assess that can be measured reliably. Similarly, a liability is recognised in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the centre at which the settlement will take place can be measured reliably.FASB FASB framework also specifies a criteria to be satisfied in the first place items are recognized in the financial statements. The framework also requires that only items that are relevant should be recognised. Like ASB, FASB framework also does not include probability as a recognition criterion.Measurement of the Elements of Financial StatementsMeasurement of elements of financial statements means assigning a monetary harbor to it. Frameworks differ on this account.ASB ASB uses encourage to the business (VTB), or deprival value of the asset for measurement of asset. Similarly, liabilities are measured on the basis of the relief value. Moreover, ASB adopts compound measurement system as against outdated frameworks that adopt a single consistent system. Mixed measurement system is flexible and allows the diachronic address and current value to be changed as accounting thought develops and markets evolve. This implies that the use of current value will become more commonplace as markets develop and evolve. This approach is used by the majority of double UK listed companies and involves measuring some balance sheet categories at diachronic cost and some at current value.IASB The IASB Framework acknowledges different measurement bases including historical cost, current cost, net re alisable value, present value. However, it does not recommend a preferent technique for measurement of assets and liabilities. The intimately common basis of measurement adopted by the framework is historical cost. Thus, there is no formal recognition of a mixed measurement system in the framework. This is its biggest drawback and makes it an outdated framework as it belongs to a different period. This approach was abandoned by the ASB in favour of a mixed measurement system. Even though some existing IFRSs are based on the concept of fair value, it is not referred to in the Framework. Again, such an omission suggests that the international framework measurement provisions are limited and out-of-date.FASB Like IASB, measurement is one of the most underdeveloped areas of FASB framework. FASB frameworks also provides a list of measurement attributes similar to ones positive by IASB that are used in practice. However, like IASB, FASB framework does not recommend measurement criteri a for any element. In other words, it too lacks fully developed measurement concepts.IASB and FASB Joint Discussion Paper The discussion paper clearly highlights a need to consider whether the conceptual framework should include not just measurement concepts, but also guidance on the techniques of measurement.ConclusionThe conceptual framework(s) contained in the ASB, the FASB, and the IASB have formed the basis of accounting standards for some time. The current IASB and FASB frameworks are increasingly out-of-date, as they ignore many of the developments that have been underinterpreted by national standards. There are certain limitations that need to addressed in a way that issues that cross-cut across standards are taken care of. For instance, a new framework is required which is not based on a single value-based model but a mixed measurement system.ReferencesAccounting Standards Board. (1999), An Introduction to the Statement of Principles for Financial Reporting, ASB Publication s, London.Financial Accounting Standards Board, (2001- 2004) Business Combinations Purchase Method Procedures and (including Combinations between Mutual Enterprises) authentic Issues Related to the Accounting for and Reporting of Noncontrolling (Minority) Interests Solomons, D. (1988), Guidelines for financial reporting London, UK ICAEW.Hines, R. (1991). The FASBs conceptual framework, financial accounting and the maintenance of the social world. Accounting, Organisations and Society, 16, 313-331.Research Memorandum (April 2004), Standard-setting and the myth of neutrality Boundaries, discourse and the exercise of power, accessed from http//www.hull.ac.uk/hubs/05/research/memoranda/Memorandum%2047.pdf, accessed on 18 January 2007.